Segro’s bet on warehouses to service ecommerce operations has served it well this year
Segro’s bet on warehouses to service ecommerce operations has served it well this year © Segro

All hail Britain’s largest listed landlord. Gone are the days when British Land or Land Securities’ portfolios of gleaming offices and sparkling shopping centres competed for the crown. Sheds are what are sexy now, Goodbody analyst Colm Lauder points out, and it is Segro that has made it so.

For investors sniffy about such things, Segro’s £11.7bn market cap, about 45 per cent more than the other two contenders’ combined, should help them hold their nose. The former Slough Estates overtook its stuffier London rivals’ equity values more than a year ago. The pandemic has accelerated the shift in status. First, fears over Brexit crimped office valuations at British Land and Landsec. Then it was the value of retail assets that faltered. Soon offices could pull ahead again as the problem du jour, if working from home really does become the new normal.

Segro’s bet on warehouses to service ecommerce operations has served it better, as half-year results showed once again on Wednesday. Shares in the old economy landlords are down roughly 40 per cent for the year to date, while Segro’s are up almost 10 per cent.

For all that, Segro’s assets have hardly soared so far this year. Its net asset value per share rose 2.7 per cent between December and June; the value of its portfolio by 0.7 per cent.

Better some growth than none at all, though. When Landsec and British Land reported results for the year to March, their net asset values were down by double digits. Expect worse when Brent Cross and Bullring owner Hammerson reports results on Thursday. It is a truly tarnished asset.

Still concerns have been voiced before that the UK logistics market is getting saturated and property values are stagnating. Vacancy rates ticked up to 5.2 per cent from 4 per cent at the end of last year. Like-for-like rent growth was only 2 per cent. The sudden shift in the popularity of online shopping could help alleviate those worries, though. So too might expansion into data centres and in continental Europe. Equity investors happily handed Segro another £680m to invest in June.

That sort of sectoral appeal comes at a princely price. Segro trades at roughly a 40 per cent premium to net asset value, with British Land and Landsec at a discount of more like half. It would be foolish to bet against the enduring allure of online shopping, and the logistics that serve it. But that doesn’t mean it’s worth backing Segro at any price.

JD forced to Foot the bill

It doesn’t take a retail genius to realise that, of all the shops hit by the coronavirus lockdown, few would be as badly affected as the unfortunately named Go Outdoors, writes Matthew Vincent. Last month, the rucksacks-to-anoraks chain emerged from a prepack administration deal with closures looking likely.

Nor does it take a retail genius to realise that, with physical exercise restricted to an hour of dog walking (or queueing for loo roll), trainers emporium Footasylum would hardly be off to the races.

Yet it seems retail genii are in short supply at the Competition and Markets Authority. It has just announced further sanctions against the owner of both of these coronavirus-hit stores: JD Sports.

In May this year, the CMA ordered JD to sell Footasylum, claiming that its acquisition of the struggling and much smaller 70-store outfit would lessen competition — despite the fact that Footasylum had issued multiple profit warnings before lockdown really put the boot in.

Now, the CMA has fined JD £300,000 because it didn’t seek consent for Footasylum to exit a store lease ahead of the forced sale of its business — despite the fact that the CMA had ordered the two chains to be managed separately during that time. JD says the CMA forbade Footasylum’s management from communicating any of its decisions, so it didn’t even know about the lease change. In response, the CMA says JD was still responsible for ensuring compliance with its presale orders.

However, as when buying tents via the Go Outdoors website, the real problem here is proportion. According to the CMA’s own guidance, it “is aware of the pressures which the current crisis is causing . . . [and] has been working closely with government to relax competition law where appropriate”.

It seemed prepared to do so when Deliveroo warned that without Amazon’s investment in its $575m funding round, Covid-19 could put it under — even if the watchdog eventually found other grounds to clear the deal. But it has not done so for a £90m acquisition that could save 70 failing plimsoll shops. Nor can it resist doubling the normal fine for an unintended breach of its disposal orders.

Why is it so disproportionately concerned about competition in this market? Could it be the testimony it received from one particular retail genius — and vested interest — Mike Ashley, owner of rival Sports Direct?

Segro: cat.rutterpooley@ft.com
CMA: matthew.vincent@ft.com

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